B. Ravikumar - Academia.edu (original) (raw)

Papers by B. Ravikumar

We use computational experiments to study the impact of two in-stitutions, centralized funding an... more We use computational experiments to study the impact of two in-stitutions, centralized funding and vouchers, on the distribution of income in a dynamic, two-school-district economy where public fund-ing levels are determined by majority rule. In this model, household ...

ABSTRACT One view of the equity premium puzzle is that in the standard asset-pricing model with t... more ABSTRACT One view of the equity premium puzzle is that in the standard asset-pricing model with time-separable preferences, the volatility of the stochastic discount factor, for plausible values of risk aversion, is too low to be consistent with consumption and asset return data. We adopt this characterization of the puzzle, due to Hansen and Jagannathan (1991), and establish two results: (i) resolutions of the puzzle based on complete frictionless markets and non-separabilities in preferences are very sensitive to small changes in the consumption data, and (ii) models with frictions avoid this sensitivity problem. Using quarterly data from 1947-97, we calibrate a state non-separable model and a time non-separable model to satisfy the Hansen-Jagannathan volatility bound and show that the two models violate the bound in almost all subsamples of the 1947-97 data. We further support our argument via a bootstrap experiment. These violations are primarily due to the fact that small changes in consumption growth moments imply changes in the mean of the stochastic discount factor, which render the volatility of the stochastic discount factor to be too low relative to the bound. Asset-pricing models with frictions, however, satisfy the bound in most of the post-war subsamples. Furthermore, these models are much more successful in the bootstrap experiment relative to the case without frictions. Abstract We adopt the Hansen-Jagannathan (1991) characterization of the equity premium puzzle, and establish two results: (i) resolutions of the puzzle based on complete frictionless markets and non-separabilities in preferences are sensitive to changes in the consumption data, (ii) models with frictions avoid this problem. Using quarterly data from 1947-97, we calibrate state non-separable model and time non-separable models with and without frictions to satisfy the Hansen-Jagannathan volatility bound, and show that the models without frictions violate the bound in most subsamples of the 1947-97 data, while those with frictions generally do not. We further support our argument via a bootstrap experiment that illustrates why the violations occur more frequently in one case than the other.

SSRN Electronic Journal, 2013

This paper deals with a classic development question: how can the process of economic development... more This paper deals with a classic development question: how can the process of economic development-transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology-be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis (1954)). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23 percent higher.

We examine the quantitative effect of search frictions in product markets on asset price volatili... more We examine the quantitative effect of search frictions in product markets on asset price volatility. We combine several features from Shi (1997) and Lagos and Wright (2002) in a model without money. Households prefer special goods and general goods. Special goods can be obtained only via a search in decentralized markets. General goods can be obtained via trade in centralized competitive markets and via ownership of an asset. There is only one asset in our model that yields general goods. The asset is also used as a medium of exchange in the decentralized market to obtain the special goods. The value of the asset in facilitating transactions in the decentralized market is determined endogenously. This transaction role makes the asset pricing implications of our model different from those in the standard asset pricing model. Our model not only delivers the observed average rate of return on equity and the volatility of the equity price, but also accounts for most of the spectral char...

Economic Synopses, 2020

, the ratio of cumulative confirmed cases to cumulative tests in the United States was nearly 20 ... more , the ratio of cumulative confirmed cases to cumulative tests in the United States was nearly 20 percent, while in South Korea the ratio was 2 percent (Figure 1). Both countries had their first confirmed case on practically the same day, January 20 for South Korea and January 21 for the United States. 1 Yet, almost three months later, the fraction of people that tested positive for COVID-19 is remarkably higher in the United States than in South Korea. This essay explores the reason why.

Economic Synopses, 2015

Returns on government debt bear little resemblance to returns on productive capital.

Journal of Monetary Economics, 1992

We develop a neoclassical capita! accur,mlation mode! with seasonal perturbations to tastes and t... more We develop a neoclassical capita! accur,mlation mode! with seasonal perturbations to tastes and technology. We calibrate the lnode! and use it to study the impact of seasonal demand and supply perturbations on economic activity. We find that the impact is largely limited to a single quarter. We also use our mode! to isolate the seasonal movements in U.S. quarterly data and then compute the seasonal variations in tastes and technology that approximately explain these mnvements. We find comovements in productivity and taste perturbations that are very similar to the seasonal comovements of aggregate variables. *The opinions expressed herein are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. We would like to thank an anonymous referee. Larry Christiano. Michael Dotsey, and seminar participants at the Federal Reserve Bank of Atlanta, University of Rochester. and University of lowa for helpful comments. We are especially grateful to Robert ng for some very useful suggestions early on in the project and to Jeffrey Miron for providing the data.

Work. Pap., Univ. of Iowa, 2004

We develop a model of publicly funded means-tested education vouchers. In this model, the voucher... more We develop a model of publicly funded means-tested education vouchers. In this model, the voucher received by each household is a decreasing function of household income. We prove the existence of a sequential majority voting equilibrium where households vote over both ...

International Trade and Economic Dynamics

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Federal Reserve Bank of St. Louis, Working Papers, 2017

We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation an... more We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation and trade imbalances. We develop a gradient-free method to compute the exact transition paths for 44 countries following a trade liberalization. We find that (i) larger countries accumulate a current account surplus and financial resources flow from larger countries to smaller countries boosting consumption in the latter, (ii) countries with larger short-run trade deficits accumulate capital faster, (iii) the gains are nonlinear in the reduction in trade costs, and (iv) capital accumulation accounts for substantial gains. The net foreign asset (NFA) position before the liberalization and the tradeables intensity in investment goods production and consumption goods production are quantitatively important for the gains.

Federal Reserve Bank of St. Louis, Working Papers, 2015

College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their... more College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their labor earnings between the ages of 25 and 55; in contrast, the increase was 2.6-fold for those entering the market in 1980. For workers without a college education these figures are 3.6-fold and 1.5-fold, respectively. Why are earnings profiles flatter for recent cohorts? We build a parsimonious model of schooling and human capital accumulation on the job, and calibrate it to earnings statistics of workers from the 1940 cohort. The model accounts for 99 percent of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts (52 percent for workers without a college education). The flattening in our model results from a single exogenous factor: the increasing price of skills. The higher skill price induces (i) higher college enrollment for recent cohorts and thus a change in the educational composition of workers and (ii) higher human capital at the start of work life for college-educated workers in the recent cohorts, which implies lower earnings growth over the life cycle.

Federal Reserve Bank of St. Louis, Working Papers, 2017

International trade in capital goods has quantitatively important effects on economic development... more International trade in capital goods has quantitatively important effects on economic development through two channels: capital formation and aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth framework. Our model matches several trade and development facts within a unified framework: the world distribution of capital goods production and trade, crosscountry differences in investment rate and price of final goods, and crosscountry equalization of price of capital goods. Reducing barriers to trade capital goods allows poor countries to access more efficient means of capital goods production abroad, leading to relatively higher capitaloutput ratios. Meanwhile, poor countries can specialize more in their comparative advantage-non-capital goods production-and increase their TFP. The income gap between rich and poor countries declines by 40 percent by eliminating barriers to trade capital goods.

The Review of Economic Studies, 1993

The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapp... more The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolisti-cally as producers but competitively as consumers then a strategic ...

We use computational experiments to study the impact of two in-stitutions, centralized funding an... more We use computational experiments to study the impact of two in-stitutions, centralized funding and vouchers, on the distribution of income in a dynamic, two-school-district economy where public fund-ing levels are determined by majority rule. In this model, household ...

ABSTRACT One view of the equity premium puzzle is that in the standard asset-pricing model with t... more ABSTRACT One view of the equity premium puzzle is that in the standard asset-pricing model with time-separable preferences, the volatility of the stochastic discount factor, for plausible values of risk aversion, is too low to be consistent with consumption and asset return data. We adopt this characterization of the puzzle, due to Hansen and Jagannathan (1991), and establish two results: (i) resolutions of the puzzle based on complete frictionless markets and non-separabilities in preferences are very sensitive to small changes in the consumption data, and (ii) models with frictions avoid this sensitivity problem. Using quarterly data from 1947-97, we calibrate a state non-separable model and a time non-separable model to satisfy the Hansen-Jagannathan volatility bound and show that the two models violate the bound in almost all subsamples of the 1947-97 data. We further support our argument via a bootstrap experiment. These violations are primarily due to the fact that small changes in consumption growth moments imply changes in the mean of the stochastic discount factor, which render the volatility of the stochastic discount factor to be too low relative to the bound. Asset-pricing models with frictions, however, satisfy the bound in most of the post-war subsamples. Furthermore, these models are much more successful in the bootstrap experiment relative to the case without frictions. Abstract We adopt the Hansen-Jagannathan (1991) characterization of the equity premium puzzle, and establish two results: (i) resolutions of the puzzle based on complete frictionless markets and non-separabilities in preferences are sensitive to changes in the consumption data, (ii) models with frictions avoid this problem. Using quarterly data from 1947-97, we calibrate state non-separable model and time non-separable models with and without frictions to satisfy the Hansen-Jagannathan volatility bound, and show that the models without frictions violate the bound in most subsamples of the 1947-97 data, while those with frictions generally do not. We further support our argument via a bootstrap experiment that illustrates why the violations occur more frequently in one case than the other.

SSRN Electronic Journal, 2013

This paper deals with a classic development question: how can the process of economic development... more This paper deals with a classic development question: how can the process of economic development-transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology-be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis (1954)). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23 percent higher.

We examine the quantitative effect of search frictions in product markets on asset price volatili... more We examine the quantitative effect of search frictions in product markets on asset price volatility. We combine several features from Shi (1997) and Lagos and Wright (2002) in a model without money. Households prefer special goods and general goods. Special goods can be obtained only via a search in decentralized markets. General goods can be obtained via trade in centralized competitive markets and via ownership of an asset. There is only one asset in our model that yields general goods. The asset is also used as a medium of exchange in the decentralized market to obtain the special goods. The value of the asset in facilitating transactions in the decentralized market is determined endogenously. This transaction role makes the asset pricing implications of our model different from those in the standard asset pricing model. Our model not only delivers the observed average rate of return on equity and the volatility of the equity price, but also accounts for most of the spectral char...

Economic Synopses, 2020

, the ratio of cumulative confirmed cases to cumulative tests in the United States was nearly 20 ... more , the ratio of cumulative confirmed cases to cumulative tests in the United States was nearly 20 percent, while in South Korea the ratio was 2 percent (Figure 1). Both countries had their first confirmed case on practically the same day, January 20 for South Korea and January 21 for the United States. 1 Yet, almost three months later, the fraction of people that tested positive for COVID-19 is remarkably higher in the United States than in South Korea. This essay explores the reason why.

Economic Synopses, 2015

Returns on government debt bear little resemblance to returns on productive capital.

Journal of Monetary Economics, 1992

We develop a neoclassical capita! accur,mlation mode! with seasonal perturbations to tastes and t... more We develop a neoclassical capita! accur,mlation mode! with seasonal perturbations to tastes and technology. We calibrate the lnode! and use it to study the impact of seasonal demand and supply perturbations on economic activity. We find that the impact is largely limited to a single quarter. We also use our mode! to isolate the seasonal movements in U.S. quarterly data and then compute the seasonal variations in tastes and technology that approximately explain these mnvements. We find comovements in productivity and taste perturbations that are very similar to the seasonal comovements of aggregate variables. *The opinions expressed herein are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System. We would like to thank an anonymous referee. Larry Christiano. Michael Dotsey, and seminar participants at the Federal Reserve Bank of Atlanta, University of Rochester. and University of lowa for helpful comments. We are especially grateful to Robert ng for some very useful suggestions early on in the project and to Jeffrey Miron for providing the data.

Work. Pap., Univ. of Iowa, 2004

We develop a model of publicly funded means-tested education vouchers. In this model, the voucher... more We develop a model of publicly funded means-tested education vouchers. In this model, the voucher received by each household is a decreasing function of household income. We prove the existence of a sequential majority voting equilibrium where households vote over both ...

International Trade and Economic Dynamics

Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch ge... more Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence.

Federal Reserve Bank of St. Louis, Working Papers, 2017

We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation an... more We compute welfare gains from trade in a dynamic, multicountry model with capital accumulation and trade imbalances. We develop a gradient-free method to compute the exact transition paths for 44 countries following a trade liberalization. We find that (i) larger countries accumulate a current account surplus and financial resources flow from larger countries to smaller countries boosting consumption in the latter, (ii) countries with larger short-run trade deficits accumulate capital faster, (iii) the gains are nonlinear in the reduction in trade costs, and (iv) capital accumulation accounts for substantial gains. The net foreign asset (NFA) position before the liberalization and the tradeables intensity in investment goods production and consumption goods production are quantitatively important for the gains.

Federal Reserve Bank of St. Louis, Working Papers, 2015

College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their... more College-educated workers entering the labor market in 1940 experienced a 4-fold increase in their labor earnings between the ages of 25 and 55; in contrast, the increase was 2.6-fold for those entering the market in 1980. For workers without a college education these figures are 3.6-fold and 1.5-fold, respectively. Why are earnings profiles flatter for recent cohorts? We build a parsimonious model of schooling and human capital accumulation on the job, and calibrate it to earnings statistics of workers from the 1940 cohort. The model accounts for 99 percent of the flattening of earnings profiles for workers with a college education between the 1940 and the 1980 cohorts (52 percent for workers without a college education). The flattening in our model results from a single exogenous factor: the increasing price of skills. The higher skill price induces (i) higher college enrollment for recent cohorts and thus a change in the educational composition of workers and (ii) higher human capital at the start of work life for college-educated workers in the recent cohorts, which implies lower earnings growth over the life cycle.

Federal Reserve Bank of St. Louis, Working Papers, 2017

International trade in capital goods has quantitatively important effects on economic development... more International trade in capital goods has quantitatively important effects on economic development through two channels: capital formation and aggregate TFP. We embed a multi country, multi sector Ricardian model of trade into a neoclassical growth framework. Our model matches several trade and development facts within a unified framework: the world distribution of capital goods production and trade, crosscountry differences in investment rate and price of final goods, and crosscountry equalization of price of capital goods. Reducing barriers to trade capital goods allows poor countries to access more efficient means of capital goods production abroad, leading to relatively higher capitaloutput ratios. Meanwhile, poor countries can specialize more in their comparative advantage-non-capital goods production-and increase their TFP. The income gap between rich and poor countries declines by 40 percent by eliminating barriers to trade capital goods.

The Review of Economic Studies, 1993

The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapp... more The possibility of sunspot equilibria and endogenous cycles are explored in a two-sector overlapping-generations model with entry. It is shown that if prospective entrants act oligopolisti-cally as producers but competitively as consumers then a strategic ...